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NAFTA, TPP, China — Canada’s trade woes set to carry into 2018

OTTAWA—When Claire Citeau looks at Canada’s international trade situation, with NAFTA under threat amidst an ongoing search for new markets, she worries about another South Korea.

Canada struck a trade deal with the Asian country in 2015, but not before the European Union, Australia and the United States inked their own pacts to get rid of tariffs on a plethora of goods entering its $1.8-trillion economy.

The result, according to Citeau, who is executive director of the Canadian Agri-Food Trade Alliance, was that Canada essentially missed the boat. Exports of Canadian agri-food exports to South Korea slumped from more than $1 billion to $530 million after the E.U. and U.S. deals were signed. By the time Canada cemented its own deal, other countries had already rushed in to sell beef, pork, grains and other goods to South Korea, Citeau said.

“Our competitors in that market basically ate our lunch,” Citeau told the Star, citing what happened as a cautionary tale for the federal government trying to open up new lanes of trade as trade with the U.S. remains under the shadow of President Donald Trump’s protectionism.

“Today, what matters is not only the free trade agreements that we negotiate, but it’s the timeliness of negotiation and implementation (of) the agreements that our competitors are also after,” Citeau said.

If that’s the lesson from the South Korean deal, then it’s fair to say that Canada’s Liberal government is under pressure to clinch new trade agreements — and soon. Our biggest trading partner, the U.S., is led by a president who has repeatedly threatened to bury the North American Free Trade Agreement (NAFTA). At the same time, Ottawa’s search for new trading partners has led to a deal with the E.U., but reaped no results from exploratory talks to start negotiating an agreement with China or to finalize the Trans Pacific Partnership (TPP) that includes big markets such as Japan.

Citeau argued that, if the U.S. is turning inward, Canada could actually get a jump start on these new markets if it lands deals before other countries do — essentially the opposite of what happened with South Korea.

“Diversification is of paramount importance to Canada,” added Lawrence Herman, a trade consultant based in Toronto. “Crisis leads to opportunities, and Canada has to emerge from the likely NAFTA crisis by exploring new opportunities.”

Dan Ciuriak, a fellow at the Centre for International Governance Innovation, said we’ve been in this situation before. He rhymed off a cycle of scenarios dating back to the 1850s, when the colonies that became Canada started pushing for trade with the U.S. as avenues of exchange with Britain were clamped down.

“Every single generation of policymakers that was confronted with a trade shock, they did not turn inwards. They turned outwards,” he said.

That’s because Canada has never been large enough to pursue an isolationist policy, where domestic consumers can buy all the goods we produce and support the growth of robust industries without relying on exports.

“It’s a fundamental reality,” he said.

In the current situation, the government has said it is exploring trade with massive international markets like India, China and the 10 countries — besides Canada — that remain in the TPP talks after the U.S. pulled out under Donald Trump.

But last month, Prime Minister Justin Trudeau was slammed in the international media when he didn’t show up to a late-night meeting on TPP during a summit in Vietnam. His office later blamed his tight schedule, but the deal — which would reduce tariffs and open up markets such as Japan, Malaysia and others — still hasn’t been finalized.

Then, in early December, Trudeau led a delegation to China under expectations that the launch of trade talks between Canada and the world’s second-largest economy were imminent. But no such talks emerged, and Trudeau returned to Canada with smaller agreements to co-operate on climate change and push for more beef and grain exports to China, but no plan to kick off wider trade talks with the economic powerhouse.

In the event that the renegotiation of NAFTA fails, Ciuriak said sectors like auto manufacturing in Oshawa and other cities will likely suffer, but the overall hit to the economy will not be catastrophic. A recent report from the Bank of Montreal concluded that, without NAFTA, the Canadian economy would shrink by 0.8 to 1 per cent — a contraction the bank called “a bad-but-not-worst-case scenario.”

The assumption is that, without NAFTA, trade of most goods would revert to rules based on membership in the World Trade Organization, which mandates low tariffs across much of the economy anyway.

At the same time, this means that there is also less to gain than you might think by striking “free trade” deals with places such as China, where many Canadian goods are already bought and sold with low tariffs, Ciuriak said. A 2015 study from the Canada-China Business Council concluded that a free trade agreement between the countries would reap $7.8 billion for the Canadian economy within 15 years — a relatively small prediction given that the 2017 federal budget included roughly $300 billion in spending.

But there’s a political dimension too. Certain sectors, such as Citeau’s agri-food alliance, see much to gain by selling such products as beef and canola to huge new markets such as China and Japan.

On top of that, the Liberal government has trumpeted its wish to include “progressive” elements in any future trade deals. Trudeau and his cabinet ministers have repeatedly said that measures on gender rights, environmental regulations and labour standards need to be part of future trade deals.

Speaking to an audience of business elites at the Fortune Global Forum in Guangzhou, China this month, Trudeau warned that without such measures, more countries could slide under the populist angst that has roiled the U.S. and countries in Europe.

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Some observers, however, have warned that bringing in such social issues into commercial discussions on trade could delay deals and make Canada miss the current window where it could break into new markets ahead of the U.S.

“Trade agreements are not necessarily the best way to promote (that agenda),” said Daniel Schwanen, an economist at the C.D. Howe Institute.

Whatever the case, there’s little doubt that trade will remain at the top of Canada’s agenda in 2018.

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